from the this-is-a-problem dept

When the jury verdict against Gawker came down a year and a half ago, we warned of how problematic it was. We pointed out that it was a big dealeven if you absolutely hated Gawker and wanted to see them destroyed. Because, as we noted, the playbook used against Gawker could be used against lots of other publications.

And it's clearly impacting a number of others as well. A couple months ago, we wrote about how the "Gawker Effect" had made it very difficult for a huge investigative piece on R Kelly "holding women against their will" by Jim DeRogatis (a music reporter who has broken a number of R Kelly related stories over the years) to find a home to get published. Lots of publishers wouldn't touch it, not because the reporting wasn't solid, but because they didn't want to face the possibility of libel lawsuits, no matter how silly.

This is happening more and more often these days, including over important stories. Over at the Columbia Journalism Review, Kim Masters has a thoughtful, but depressing, article about how this "Gawker Effect" nearly killed another key story about sexual harassment in Hollywood -- involving Amazon exec Roy Price (who runs Amazon's Hollywood efforts) allegedly sexually harassing Isa Hackett, a producer on the Amazon hit show "The Man in the High Castle." The article was eventually published at The Information (behind a paywall). Last month, there was an article at Recode speculating that other publications passed on the story because Price, like Hulk Hogan (and like Harvey Weinstein and like Shiva Ayyadurai, the plaintiff in a lawsuit against us), employed lawyer Charles Harder. In the Recode piece, The Information's CEO, Jessica Lessin is quoted as saying that other publications passed because of threats from lawyers:

Lessin, referencing the Masters story, wrote that “we recently published a version of a story that three other publications passed on after very high-priced lawyers promised to sue them."

The Recode piece also quotes people from other publications who argued that there were other reasons for passing -- including that the earlier versions of Masters' story didn't have enough on-the-record sources. For what it's worth, one of the publications that passed -- the Hollywood Reporter -- recently made new headlines in this story by getting an interview with Isa Hackett, in which she revealed more details about Price's behavior towards her.

In the CJR piece, Masters shares more of the details of what happened behind the scenes, and how pressure was applied, via legal threats, to try to kill the story. It's at least marginally troubling that she notes it wasn't just Charles Harder who was making the threats, but also well-known lawyer Lisa Bloom. Bloom was, somewhat famously, also part of Harvey Weinstein's "legal team" which struck many people as odd, since her reputation was for representing the victims of sexual harassment and assault, not the other side. A few days after the Weinstein stories came out, Bloom said she was no longer working for Weinstein (also, recently, Harder claimed he has also stopped working for Weinstein despite earliler promising a lawsuit). She told the Hollywood Reporter, she worked with him to "change the way these stories go." And, more specifically to avoid the pattern of "when the story comes out, attack the accuser, deny, deny, deny, and fight like hell" because, as Bloom told THR: "I know how damaging that is to them, how hurtful, how scary. It’s emotionally devastating." Over the weekend, she told Buzzfeed something similar:

“All I can say is, from my perspective, I thought, ‘Here is my chance to get to the root of the problem from the inside. I am usually on the outside throwing stones. Here is my chance to be in the inside and to get a guy to handle this thing in a different way.’ I thought that would be a positive thing, but clearly it did not go over at all.”

But Masters notes that Bloom and Harder together threatened the reporting she did on Price:

People in Hollywood and the media world were surprised my byline ended up in The Information, given that I worked at The Hollywood Reporter. (My editor there, Matthew Belloni, said in a Recode article about my difficulties getting the story published that “any suggestion that a story on this topic didn’t run because of outside pressure would be false.”) THR did allow me to shop the story elsewhere, but it came with a guaranteed threat of litigation from Price’s attorneys. Over the weeks that would follow, as I began searching for a home for my scoop, Harder and Bloom convinced every publication that considered my story that they weren’t just threatening legal action but would indeed sue.

Perhaps that threat was so convincing because Harder had handled Hogan’s devastating suit against Gawker with backing from billionaire Peter Thiel. In her zeal to protect her client—who has yet to address any of the allegations in my piece publicly—Bloom claimed that I had turned on Price after he rebuffed my demand to have Amazon underwrite The Business, the public-radio show that I host on KCRW. I can’t guess who concocted that allegation, but I assume the idea was to establish a potential argument that I had behaved unethically and had a personal grudge against him and therefore didn’t care what the facts were. (Since Price is a public figure, his only hope of prevailing in court would be to argue that I published information I knew to be false or acted in reckless disregard of whether it was false.)

When I first read the claim in an email from Bloom, I was angry, but I also laughed because it was ridiculous. I’ve never discussed underwriting with anyone, even internally at KCRW. I don’t know the first thing about it. I’m told Bloom insisted she had proof, though of course none was produced. My editor at THR told her that the story was false, but she repeated it to other publications nonetheless. (Bloom on Thursday said she no longer is working with Price.)

Masters admits that the earlier work didn't yet have the full on-the-record statement from Hackett, which was necessary to make the piece publishable, but does note how much the legal hounding from Bloom and Harder made it that much more difficult to get a publication to go with the piece.

By the time I was done, I had talks with more than six publications and went through legal review at three. The anxiety is always high when there’s a threat of a lawsuit around a story, but this time, it seemed off the charts. At one point, an attorney reviewing the piece only sputtered when I asked her to explain what, exactly, was legally problematic with portions of the story that she wanted to delete. She literally could not construct a sentence to explain her reasoning.

There's a lot more in Masters' piece that is worth reading and that highlights just how damaging the Gawker Effect has become. Again, even if you absolutely hated Gawker and cheered its demise, you should be concerned with what it has wrought. Masters hopes that with the Weinstein story getting so much attention it will help "change the environment" and encourage more people to come forward, and to embolden more publishers to publish these kinds of investigative reports.

However, there's still a missing piece here. Masters is right that these legal threats are a problem, and hopefully the attention brought about from exposing sexual harassers will embolden more publishers to publish these articles, even in the face of coordinated legal threats -- but what we still really need are stronger anti-SLAPP laws in various states (some of which still have none, and many of which have very weak ones). Or, even better, a comprehensive federal anti-SLAPP law. Such a law would allow publications to have more confidence in publishing such exposes of bad behavior by the rich and powerful, since they could push back against bogus legal threats by noting that filing a lawsuit probably won't get very far, and almost certainly would force the plaintiff to pay legal fees. We've been calling for such a federal anti-SLAPP law for nearly a decade, and I hope we're not still calling for one a decade from now. Masters' story is yet more evidence that Congress needs to act, now.

from the he's-not-(completely)-wrong dept

It looks like Prenda's Paul Hansmeier isn't nearly as interested John Steele in striking a deal with the feds. Of course, Steele folded immediately, offering up Hansmeier as bus undercoating, which likely means Hansmeier isn't being feted by feds with plea deals.

The 17-count indictment relayed a story familiar to Techdirt readers, since we have covered nearly every part of the scam: a get-rich-quick scheme that paid off at first for Prenda, but quickly unraveled as courts (and many copyright troll fighters) uncovered fake defendants, shell companies, forged documents, and honeypot-as-business-model tactics.

Faced with numerous charges and seemingly no option to shift the culpability back to Steele, Hansmeier is arguing the entire justice system will collapse if he's convicted. I wish I could tell you I'm exaggerating the dismissal request's prose for the sake of levity, but I'm afraid that's exactly what the dense's 64-page filing [PDF] says (h/t Sophisticated Jane Doe):

The government has issued a lengthy, winding, and jumbled charging document, all grounded upon an unorthodox and unviable legal theory. Because it has opted to proceed in this way, this Memorandum is by necessity heftier than it might otherwise be. Augmented size demands greater organization, so this paper begins with a Table of Contents to give the Court an overview of where the exploration will go, which then leads into the full discussion. All of this requires a fair number of words, but in the end the resolution boils down to a relatively simple concept: Prosecutors ought not be allowed to ground criminal fraud or analogous charges upon someone’s exercise of constitutionally protected civil litigation activities. As will be seen, this core rule is immensely important. Not just in the case at hand, but to this nation’s system of civil justice as a whole. This prosecution is legally unviable, and thus must be dismissed.

The gist of Hansmeier's federal court longform piece is this: the federal government should not be prosecuting people for bad- or zero-faith litigation. There are several sub-gists. As gists go, however, this isn't a bad one. The judicial system has many tools to deploy against bad-faith litigation, including sanctions and outright dismissal. Defendants have some tools at their disposal as well, but no matter how much Hansmeier attempts to pretty this up, it still costs real money to defend against bogus litigation.

The toolset is limited and, sometimes, completely useless. Prenda faced these tools on multiple occasions before finally deciding to get out of the copyright trolling business. Unpaid sanctions remain unpaid. Hansmeier moved on to trolling of the ADA variety and presented the Minnesota court system with perhaps the best argument to date for the reestablishment of debtors prison during his bankruptcy proceedings.

But the overall point remains a good one: it shouldn't be illegal to engage in litigation, no matter how misguided or disingenuous. Allowing the government to literally make a federal case of it could chill legitimate litigation. This point should not be understated. However, the filing ignores that Hansmeier wasn't just engaged in bad faith litigation, but rather he was piling all sorts of illegal behavior on top of it: forgeries, perjuries, fake plaintiffs, defendants who had made a deal to be a defendant solely for revealing IP addresses, fake claims of "hacking" to make questionable CFAA claims and much much more.

By its legal theory propounded here, the federal government now proposes to: (a) arrogate authority unto itself; (b) to patrol the civil dockets of this and any other tribunal of its choosing; (c) searching for instances of what it views to be baseless or otherwise unethical or inappropriate civil litigation activities; (d) all with the aim of prosecuting, penalizing, and imprisoning those litigants or lawyers who it deems to have stepped out of line. Or more accurately, anyone who the government chooses to target at any given moment. Prosecutors could, as in the present case, charge someone who has instituted a civil action against a fellow citizen to redress a legally recognized grievance. But the government could just as easily train its sights on, say, a citizen who has brought a Bivens action against a federal law enforcement official. Or it could bring similar charges against a detainee pursuing a civil habeas corpus action. Or against a lawyer seeking a declaration that some statute enacted by the Legislative Branch violates the United States Constitution. Or against a litigant seeking to enjoin some unlawful action of the Executive Branch.

But Hansmeier is also arguing that engaging in copyright trolling should only be punishable by judicial sanctions and the like, no matter how ineffective those deterrents are, and, apparently, no matter how much fraudulent behavior the litigants engage in. In fact, Hansmeier tries to claim the fraudulent litigiation Prenda engaged in produced no victims. (From the Bill of Particulars [PDF] submitted with the dismissal motion, via SophisticatedJaneDoe)

We ask that the prosecution be directed to identify the victim(s) of the offenses alleged in the indictment, to explain how they were victimized, and to specify the loss amount(s). Is the alleged victim the computer users described above and below? Or civil courts? Or both? Or someone else? Is the government relying upon “fraud on the court” judicial opinions imposing civil sanctions? If so, by what reasoning?

The 64-page wall of text is worth reading, if only to admire the sheer number of words expended to tie Hansmeier's "honest" copyright trolling into the government's conspiracy charge. This may seem counterproductive, but Hansmeier's representation's angle has its own genius: if the conspiracy charges cannot be extricated from Prenda's "protected" litigation, the government's whole case falls apart.

The Court may thus wonder whether the present motion to dismiss is confined to the standalone Mail/Wire Fraud counts, (Counts 2-16), or if it encompasses the above conspiracy counts as well, (Counts 1, 17).

Because the government’s deficient prosecution theory pervades and fatally infects both the standalone and above conspiracy counts, all must fall. The reason stems from the law of conspiracy, which is an inchoate offense involving a mere agreement rather than actual accomplishment of the underlying alleged criminal objective.

The theory goes on for several pages, but the underlying theory is this: the 15 counts of wire fraud are actually just the fed's (apparently severely-misguided) interpretation of Prenda's non-criminal "copyright protection" litigation efforts.

Thus, since the standalone Mail/Wire Fraud counts (Counts 2-16) are grounded upon a legally and/or constitutionally invalid prosecution theory, each such deficient count must be dismissed. The government alleges this identical Mail/Wire Fraud theory as the sole objective of the Mail/Wire Fraud Conspiracy (Count 1), (ECF 1, ¶¶ 15-17), and the Money Laundering Conspiracy claim (Count 17), (ECF 1, ¶ 40). Under Griffin/Yates and the other opinions cited, these legally-deficient charged conspiracy objectives mean that that each of these conspiracy counts must fall away as well.

If Hansmeier can convince a judge the government intends to treat copyright litigation as wire fraud -- and thus cause damage to the judicial system as a whole -- he may get a dismissal of those charges. That takes care of most of them. Of course, that requires effectively ignoring all of the other activity that wasn't just bad-faith litigation. Alternatively, he can convince a judge the conspiracy charge is unfounded, which would wipe away the fraud charges as well. That's why we have a 64-page pretrial motion to dismiss on our hands, rather than a few more weeks of pre-trial plea bargaining.

The motion takes issue with the federal indictment -- both in its depiction of copyright trolling as a criminal enterprise as well as its use of "charged language" like "extortionate tactics" and "sham clients." Hansmeier says the government's wire fraud charges basically boil down to a recap of normal copyright trolling efforts.

According to the government, the accused lawyer Mr. Hansmeier is criminally liable for the federal offenses of Mail/Wire Fraud and money laundering due to his institution of “fraudulent copyright lawsuits,” which (it is claimed) qualify as such because—

(a). The defendant lawyers and others “uploaded the [protected works] to file sharing websites hoping to lure people into downloading” those same protected works;

(b). The defendant lawyers owned and/or controlled the statutory exclusive rights in protected works rather than the named plaintiff business organizations, thus giving the defendant lawyers a personal stake in the outcome of the litigation;

(c). The defendant lawyers were derelict in their professional ethics obligations, including a duty of candor to federal civil courts when invoking court-overseen discovery procedures to identify computer users who had downloaded the protected works at issue; and

(d). The defendant lawyers employed “extortionate tactics to garner quick settlements” from such identified computer users, who were “unaware of the defendants’ role in uploading the [protected works at issue], and often were either too embarrassed or could not afford to defend themselves.”

Hansmeier argues this is all perfectly legal litigation and that the government has made no showing that these lawsuits were so baseless they should be indicted for them. But that's an extremely generous interpretation of Prenda's practices, which included forged documents, honeypot uploads, shell corporations, faux defendants, and other instances of fraud upon the court. Prenda was on the receiving end of multiple sanctions by the time it fell apart (and showed no signs of wanting to stop or recognizing that it had done anything wrong) and all of this sprung out of its speculative invoicing process, which used federal courts and statutory damages as leverage in multiple baseless infringement lawsuits.

The motion claims the government's interpretation of wire fraud statutes would endanger a great deal of legitimate litigation (although citations of Malibu Media cases probably isn't the best argument for trolling's legal legitimacy). The conclusion reached is that this prosecution is some twisted fed vendetta, with the government going after a longtime internet punching bag:

[T]the government broadly disapproves of the lawyer-entrepreneurial activities described earlier, i.e., forming organizations to pursue civil enforcement of the Copyright Act, monitoring computer file-sharing platforms for that purpose, using civil court discovery mechanisms to identify violators, and so on. And its ire is directed with singular force toward Mr. Hansmeier—something of a cause célèbre and object of scorn in the news media and blogosphere and elsewhere—whose litigation tactics have already been penalized by civil courts and state licensing officials. By this prosecution, the government aims to heap yet more punishment on top of all that.

This is a rather amazing (and ambitious) filing. Hansmeier has scored a very good pair of public defenders, ones who are willing to hand the court something few judges are clamoring for: a 64-page, densely-worded pretrial motion to dismiss. It's certainly far more than Hansmeier should expect, given he's done about as much damage to the reputation of lawyering as one man can possibly do. Other copyright trolls* have to be applauding this motion, as it legitimizes their efforts and provides a template for their own defense against criminal charges, should it ever come to that.

*This term (troll) bothers Hansmeier and his defense. This memorable footnote appears in the filing during the motion's discussion of the government's use of trolling opponents' "charged language" in its indictment.

On the debate’s flip side, there are those who use pejorative terms like “pirates” to describe those accused of Copyright Act violations. In truth, none of these or other puerile terms are helpful to sober legal analysis. Quite the opposite. The terms are mentioned here only because they are sprinkled prolifically throughout the literature, and even some court opinions, on this topic. In all, the defense would discourage use of such invectives, as they are analytically unhelpful and unnecessarily inflammatory.

from the but-will-it? dept

For quite some time now the FTC has been making lots of noises about the problems of the patent system and patent trolls in particular. While the US Patent Office itself has done little to address the problem, the FTC has recognized the harm patent trolling is doing to innovation and consumers. More than five years ago, the FTC released a big report on patent trolling and the problems it causes -- suggesting that the Patent Office should start getting rid of vague patents with "indefinite" claims. That has happened a little bit, but much more because of the Supreme Court forcing the issue, rather than the USPTO listening to the FTC.

However, since then, it's appeared that the FTC has only grown more concerned. Basically every year we report that the FTC is investigating patent trolls in some form or another. In 2012 (a year after that first report), the FTC began exploring patent trolling more thoroughly. In 2013, it announced an official investigation that would make use of subpoenas to find out how patent trolls were actually operating. Later that year it was revealed that it would subpoena 25 patent trolling operations. Since then, though, it's been mostly crickets. There was one famous troll, MPHJ, who sued the FTC in a case that was dismissed.

And now, finally, after all these years, the FTC has released its big report. It appears that 22 patent trolling operations responded to the subpoenas, though many had "affiliates and other related entities" allowing the FTC to study many more patent trolling operations overall. The study lumps patent trolls (they prefer the euphemistic "Patent Assertion Entities" or PAEs) into two categories: litigation trolls and portfolio trolls. In short, litigation trolls are the smaller guys with just a small number of patents, who would threaten and sue companies (and quickly reach settlements) over those few patents. It's more of a "mom & pop" shakedown kind of business. Portfolio trolls are the bigger, well funded operations, that have a massive portfolio of patents and play a more comprehensive shakedown game, going to lots of big companies and basically saying "you infringe on some of our patents, so give us a bunch of money to not figure out which ones." Think: Intellectual Ventures or Acacia.

The differences here matter, because the businesses are quite different. Lots of the actual lawsuits come from the litigation trolls as a sort of negotiation tactic. The portfolio trolls don't actually have to go to court that often -- they have "sales people" who are a bit more effective. But the amount of dead-weight loss to the economy from the portfolio trolls is much larger. When big companies agree to a portfolio troll shakedown it's often for a tremendous amount of money. The FTC study found 80% of the revenue went to portfolios, and only 20% to litigation trolls -- even though litigation trolls filed 96% of the lawsuits and 91% of the reported licenses.

One interesting -- and potentially surprising -- finding of the study was that the FTC did not see evidence of much pure demand letter shakedown. That is, it's been said that many of the smaller trolls just send letters, but never expect to go to court, since many may just settle based on the demand letter. But the FTC didn't find much evidence to support that -- saying that most of the revenue for litigation trolls came from actually going to court (and then rapidly settling). In short, it appears that the leverage of a federal lawsuit (in eastern Texas, probably) is much stronger than just a threat of a lawsuit. But a key takeaway from this is that attempts to reform demand letters (which has been regularly proposed -- such as requiring them to outline what the infringement is) won't actually help much.

The study also looked at wireless chipset manufacturers (i.e., companies that actually implement products) to compare them to patent trolling operations. The key question here: do the actual implementers use patents in the same way to "protect" their business. As you might expect, they don't act very similar at all:

We observed that Wireless Manufacturers sent demand letters before executing licenses, while Litigation PAEs sued before licensing their patents. Wireless Manufacturers and NPEs also sent nearly three times as many demand letters as all of the Study PAEs combined. Litigation PAEs brought nearly two-and-a-half times as many patent infringement cases involving wireless patents as Wireless Manufacturers (which collectively accounted for approximately 90% of worldwide chipset sales), NPEs, and Portfolio PAEs combined.

In short, the trolls' activity is inconsistent with the activity of actual innovators.

In the Wireless Case Study, the FTC found that Study PAEs were more likely to assert their patents through litigation than were Wireless Manufacturers. For example, 30% of Portfolio PAE wireless patent licenses and nearly 90% of Litigation PAE wireless patent licenses resulted from litigation, while only 1% of Wireless Manufacturer wireless patent licenses resulted from litigation.

In other words, all of the people who insist actual innovators need patents to protect their business, and that patent trolling is just a form of the same thing are full of it.

There are a few other items in the report, but these seem to be the big ones. The report also comes with some recommendations (which hopefully won't be ignored this time). First up is to somehow deal with the high costs of being sued by a troll, starting with the costs of discovery. This has been a known problem for years, where the trolls basically ask for everything in discovery, knowing that the discovery process alone is so time consuming and expensive that many companies will simply give in and pay.

Because defendants frequently paid less than the estimated value of discovery costs to settle litigation with Study PAEs, and because there is asymmetry in discovery burden between PAE plaintiffs and defendants, Congress, the Judicial Conference of the United States, and individual courts should promote case management practices that take these costs and asymmetries into account. One step toward achieving this goal would be to amend Federal Rule of Civil Procedure 26, which addresses discovery in civil actions, in a way that helps balance these relative burdens. Rule 26 requires parties to meet and confer to discuss, among other things, a plan for discovery. Early disclosure of asserted claims and infringement and invalidity contentions in PAE litigation would help to balance the asymmetries of plaintiff and defendant-side discovery costs. Likewise, measures that would limit discovery before preliminary motions together with provisions to ensure that such motions are decided in a timely manner would help alleviate the asymmetry problem. Furthermore, early disclosure of
damages theories would flag potential legal issues for summary judgment motions and provide more
information for settlement discussions. In general, any measures that reduce discovery burden and costs
while ensuring discovery of information appropriate to the case should be considered.

They sort of bury it in the middle, but limiting discovery before preliminary motions would be a huge help.

A second recommendation is basically forcing troll shell companies to reveal who they're affiliated with. We've discussed how trolls often hide behind shells and how Intellectual Ventures has thousands of shells. Congress has proposed a true disclosure rule so that lines up somewhat with the FTC's recommendation.

The third recommendation has also popped up in proposed patent reform: encouraging courts to put patent troll lawsuits on hold when they're suing both manufacturers and end users. Basically the idea is to put the lawsuits against end users on hold until the issue with the manufacturer has gone through the judicial system.

The final recommendation is to require patent trolls filing a lawsuit to actually show how the defendant infringed upon filing the lawsuit, rather than just making vague statements accusing the defendant of infringement at the initial pleading stage, as happens today.

Every single one of these suggestions has been included in the patent reform bill that has been floating around Congress basically this entire session. Unfortunately, the coalition behind it fell apart under really strong pressure from pharmaceutical companies and giant patent licensing firms like Qualcomm.

One hopes that this data-driven report from the FTC will give a renewed push to Congress to actually push through the very reform that the FTC says would solve many problems, but Congress doesn't often seem to care about fact-driven policy, preferring to stick with faith-based, emotion-driven bullshit from patent holders about how any such reform would destroy innovation in America.

from the no-love-lost dept

It must be admitted that the Apple/FBI fight over iPhone encryption has had much more "outside the courtroom" drama than most cases -- what with both sides putting out their own blog posts and commenting publicly at length on various aspects. But things have been taken up a notch, it seems, with the latest. We wrote about the DOJ's crazy filing in the case, which is just chock full of incredibly misleading claims. Most of the time, when we call out misleading claims in lawsuits, the various parties stay quiet about it. But this one was apparently so crazy that Apple's General Counsel Bruce Sewell called a press conference where he just blasted the DOJ through and through. It's worth looking at his whole statement (highlights by me):

First, the tone of the brief reads like an indictment. We've all heard Director Comey and Attorney General Lynch thank Apple for its consistent help in working with law enforcement. Director Comey's own statement that "there are no demons here." Well, you certainly wouldn't conclude it from this brief. In 30 years of practice I don't think I've seen a legal brief that was more intended to smear the other side with false accusations and innuendo, and less intended to focus on the real merits of the case.

For the first time we see an allegation that Apple has deliberately made changes to block law enforcement requests for access. This should be deeply offensive to everyone that reads it. An unsupported, unsubstantiated effort to vilify Apple rather than confront the issues in the case.

Or the ridiculous section on China where an AUSA, an officer of the court, uses unidentified Internet sources to raise the spectre that Apple has a different and sinister relationship with China. Of course that is not true, and the speculation is based on no substance at all.

To do this in a brief before a magistrate judge just shows the desperation that the Department of Justice now feels. We would never respond in kind, but imagine Apple asking a court if the FBI could be trusted "because there is this real question about whether J. Edgar Hoover ordered the assassination of Kennedy — see ConspiracyTheory.com as our supporting evidence."

We add security features to protect our customers from hackers and criminals. And the FBI should be supporting us in this because it keeps everyone safe. To suggest otherwise is demeaning. It cheapens the debate and it tries to mask the real and serious issues. I can only conclude that the DoJ is so desperate at this point that it has thrown all decorum to the winds....

We know there are great people in the DoJ and the FBI. We work shoulder to shoulder with them all the time. That's why this cheap shot brief surprises us so much. We help when we're asked to. We're honest about what we can and cannot do. Let's at least treat one another with respect and get this case before the American people in a responsible way. We are going before court to exercise our legal rights. Everyone should beware because it seems like disagreeing with the Department of Justice means you must be evil and anti-American. Nothing could be further from the truth.

Somehow, I don't think Apple and the DOJ will be exchanging holiday cards this year. Apple's reply brief is due on Tuesday. I imagine it'll be an interesting weekend in Cupertino.

from the nice-try dept

One of the points that we've made a few times concerning the whole net neutrality fight is that whatever rules are put in place, someone is going to sue. As we noted in that post, Verizon's original filing on the net neutrality plan the FCC announced back in May (based on Section 706) suggested that Verizon would sue over those rules if they were put in place (in contrast to Comcast and AT&T who both said they'd be fine with rules under 706). Since then, it's become clear that lots of other ISPs have made it clear to Verizon that it should shut up and sit tight, because its own lawsuit that kicked out the 2010 rules now seem likely to lead to much stricter laws.

So it's fairly amusing to see Verizon put out a blog post effectively now pleading for the May rules under 706 -- rules that it didn't initially support -- now that it's come out that the FCC is considering this new "hybrid plan." Suddenly, according to Verizon, rules under 706 are unassailable and won't lead to a lawsuit, while everything else will. First, Verizon attacks the full Title II plan, insisting that ISPs will "have no choice" but to sue, and even that consumer groups would sue if the FCC forbears too much:

If the FCC reclassifies Internet access as a Title II service, the hyper-regulatory group will be happy, but may sue anyway if the FCC forbears from too many arcane common carrier rules for their taste (and to keep their fund raising pipeline flowing). As well, the ISPs, and perhaps some in the tech industry, will have no choice but to fight the sudden reversal of two decades of settled law. By departing from the judicially sanctioned Section 706 approach, the FCC will have increased both the likelihood – and the likelihood of success – of any legal challenge.

I've seen no indication that anyone on the consumer advocacy side of things would sue if the FCC forbears too much -- in fact, most of the proposals ask for forbearance from nearly all Title II requirements, leaving just a few in place. But, yes, everyone knows that Verizon and others would sue over Title II rules.

And, of course, if the hybrid plan is put in place, folks from both sides may sue:

Recently we’ve heard press reports that the FCC might embrace a “hybrid” model – one that splits Internet access apart (at least in metaphysical terms), and reclassifies the content-provider portion as a Title II service, but bases customer-facing rules on section 706. Both the utility regulation crowd and the ISPs have pushed back hard on this approach. Here the FCC has opened itself to credible challenges by all parties. Again, by departing from the safe harbor of Section 706, the FCC will face strong challenges on the partial move to Title II from those investing in networks. And because the FCC will have to describe why the partial move was necessary, it will open itself to challenge by the utility regulation camp about why a wholesale move to Title II wasn’t equally necessary. Like a full move to Title II, the hybrid approach also fairly guarantees litigation.

But... Verizon insists, suddenly the original proposal under 706 that Verizon itself didn't initially want -- well, that won't lead to litigation in Verizon's fantasy world:

Finally, there is the original section 706-based proposal. In this instance all of the major ISPs and their trade associations have conceded that the FCC can lawfully prohibit harmful paid prioritization on this basis – effectively waiving their ability to challenge the FCC’s authority to do so and taking them out of the litigation path. For their part, the utility regulation camp cannot appeal an FCC decision to rely on 706 as a basis for prohibiting paid prioritization without arguing that those rules are invalid, which they would be loath to do. Their only possible appeal is to argue that the FCC should have regulated even more heavily, and reclassified under Title II to impose legacy common carrier regulations. The Title II advocates will have a very hard time finding a solid basis on which to challenge what they believe is the “under regulation” of this route: the statutory basis is already blessed, and the record will likely support the regulations proposed.

Of course, this ignores the fact that the 2010 rules were under Section 706, and Verizon sued and won. Yes, these new rules try to take into account the specifics of the court's ruling, but still. Section 706 rules can and do lead to lawsuits. In fact... while Verizon would like to pretend everyone would be happy with rules under Section 706, that's clearly not true. The American Cable Association (ACA), in its filing to the FCC (pdf), made it fairly clear that its members would, in fact, sue over the use of Section 706 if (as is expected) the FCC makes it clear that the rules only apply to internet access providers and not online service providers (i.e., Netflix, YouTube, etc.):

In addition to recognizing that asymmetrical application of open Internet rules to only
broadband ISPs would be bad policy, it would also be an arbitrary and capricious application of
the Commission’s authority since the record soundly shows that ISPs are not the only Internet
actors capable of undermining the goals of the proposed open Internet rules. In its comments,
ACA argued that not only would failure to apply open Internet rules on all Internet actors that
have the ability to block or degrade fail to achieve the primary open Internet goals of the
Commission, but asymmetric regulation that constrain the business behavior of a single class of
platform providers (i.e., fixed broadband ISPs that are also MVPDs) would distort market
incentives....

[....]

Should the Commission adopt new
open Internet rules on ISPs as part of this proceeding, the Commission must broaden the scope
of its rules to apply equally to all forms of Internet blocking and degradation that interfere with
the virtuous circle of innovation, consumer demand, investment and broadband deployment that
it is charged to protect, or else it severely risks reversal in the courts. The prolonged uncertainty
such a situation would create would do no one – not edge providers, nor access providers nor
consumers – any good.

This is the poison pill effort that some broadband providers were trying early on with net neutrality rules, basically telling the FCC if it's going to put any kind of rules on internet access providers (who often do represent a monopoly/duopoly situation), they must also saddle the same rules on internet companies, despite the situation being entirely different. The goal here was to try to scare internet companies into supporting the broadband players' position, but it also shows the thinking of these ISPs and the fact that the basic rules under 706 are almost certainly going to lead to litigation too, contrary to Verizon's new attitude that rules under 706 are universally loved and adored by all.

So, again, key point: no matter what rules the FCC puts in place, someone is going to sue. Given that, the argument that the FCC should choose plan A, B or C based on a lawsuit avoidance strategy makes little to no sense. There will be a lawsuit from someone. You can make reasonable arguments that one or another legal position may be more defensible, but in talking to a lot of different people on all sides of this debate, I'm fairly convinced that no one has a legitimate idea of which plans are more defensible than others. They can all make credible arguments that any of the three plans will win in the courts or lose in the courts. I've seen convincing arguments that the 706 plan can survive the courts, the hybrid plan can survive the courts and the Title II plan can survive the courts. Similarly, I've seen credible arguments that all three would fail in court.

Given all that, if the plan is going to get challenged no matter what, and there will be the dreaded "years of uncertainty" no matter what -- why not just pick the absolute best plan there is to accomplish what the FCC is trying to do?

from the hard-to-count-what-we've-lost dept

Last fall, law professor Michael Carrier came out with a really wonderful paper, called Copyright and Innovation: The Untold Story. He interviewed dozens of people involved in the internet world and the music world, to look at what the impact was of the legal case against Napster, leading to the shutdown of the original service (the name and a few related assets were later sold off to another company). The stories (again, coming from a variety of different perspectives) helps fill in a key part of the story that many of us have heard, but which has never really been written about: what an astounding chill that episode cast over the innovation space when it came to music. Entrepreneurs and investors realized that they, too, were likely to get sued, and focused their efforts elsewhere. The record labels, on the other hand, got the wrong idea, and became totally convinced that a legal strategy was the way to stem the tide of innovation.

The Wisconsin Law Review, which published Carrier's paper, asked a few people to write responses to Carrier's paper, and they recently published the different responses, including one from a lawyer at the RIAA, one from another law professor... and one from me. This post will be about my paper -- and I'll talk about the other papers in a later post. My piece is entitled When You Let Incumbents Veto Innovation, You Get Less Innovation. It builds on Carrier's piece, to note that the stories he heard fit quite well with a number of other stories that we've seen over the past fifteen years, and the way in which the industry has repeatedly fought innovation via lawsuits.

You can read the whole paper at the link above (or, if you prefer there's a pdf version). I talk about the nature of innovation -- and how it involves an awful lot of trial and error to get it right. The more trials, the faster what works becomes clear, and the faster improvement you get. But the industry's early success against Napster made that nearly impossible, and massively slowed down innovation in the sector. Yes, a few players kept trying, but it developed much more slowly than other internet-related industries. And you can see why directly in the Carrier paper, where entrepreneurs point out that it's just not worth doing something in the music space, because if you want to actually do what the technology enables, the kinds of things that are cool and useful and which consumers would really like... you'll get sued.

Take that away and you get less trial and error, and slower innovation (and less interesting innovation). Look where we are today, fifteen years later. We've basically reinvented radio and put it online. We're barely getting past that stage. You can read the whole paper for more on that, but I did want to highlight one key section in the paper: which is how the content industry always completely downplays the importance of the technology and services. Any time there's a successful new service -- whether it's iTunes or Netflix or Spotify or Pandora or YouTube -- you'll find stories about the incumbents trying to denigrate and mock it, or even outright kill it. They talk about how those services are "nothing without our content," and they get angry if any of those services make any money.

This is ridiculous. Yes, the content is important, but if it was just the content, then those services never would have become successful in the first place. The reason those services are successful was because they actually innovated and provided convenience, access, ease of use and other nice features that were missing before. Too many copyright maximalists simply can't bring themselves to admit that you need both the content and the services working together. When you trash those services, and attack them or try to saddle them with ridiculously high fees, you break down what works, and you actually drive more people to infringing alternatives. Here's a snippet from my discussion on this point (with footnotes removed):

Throughout all of this, a unique pattern emerged. The labels would always massively overvalue their own content, while simultaneously undervaluing the various innovative services. Phrases along the lines, “without our music, they’d be nothing” were heard frequently in arguing why it was all about the content. The truth, however, is that it was the combination of the two that were important. Yes, the services needed the music to work, but so too did the labels need these new services to adapt to a changing marketplace.
This should have been obvious from the fact that people would flock to these new services, yet failed to show up to the record labels’ own attempts to innovate or provide something new. However, as soon as any service showed any kind of promise, even if “licensed,” the labels would seek to kill the golden goose by claiming that the rates were unfair, and the innovators were making money unfairly off the backs of the copyright holders (by which they meant the labels, not the musicians, of course).

Take, for example, the brief heyday of music video games like Guitar Hero and Rock Band. For a year or two, the recording industry fell head over heels in love with these games, because people were playing them quite a bit, and they were (briefly) willing to pay a slight premium to get access to music from well-known bands and musicians. Rather than build on that, the industry did two things: it focused all of its attention on those kinds of games, absolutely flooding the market and making people get sick of the game genre, and demanded much higher royalties.

The viewpoint seemed to be that there could be almost no benefits for the innovators. Nearly all of the benefits had to accrue to the labels, or it would be seen as a problem. In fact, the one exception that got through was iTunes, and that was quickly seen as a “problem” by the labels, even as it was dragging them, kicking and screaming, into the marketplace for digital music. The view is one of an extreme zero-sum world, where if someone else is benefiting, it must mean that the labels were losing out. They didn't even hide this view of the world. Doug Morris, then head of Universal Music (now head of Sony Music) explained to a Wired reporter that investing in new innovations that weren’t paying money upfront meant that “someone, somewhere is taking advantage of you.” As laid out in the article, Morris was uninterested in technology, and didn’t even know how to hire a competent technology person, so his focus was on making sure everyone paid up immediately. Anyone making money in the music world without first paying a massive cut were dubbed “thieves.”

I find this tragic. If the entertainment industry had recognized early on that the tech industry wasn't an enemy, but a provider of wonderful new tools and services that helped to expand their market, we'd be much further along. Getting these things right takes time and experimentation, but the legacy players refuse to accept that. They want a perfect solution that fully replaces their old business 100% (or more) without any disruption -- and they want to accrue all of the benefits, without any going to the actual innovators. That, of course, doesn't help anyone, least of all the actual content creators.

There's so much innovation and opportunity available in the music space -- it's just sad that we've only made baby steps since Napster, when we should be leaps and bounds further along.

from the quite-useful dept

A few years back, a patent attorney made a simple suggestion to me, asking that, whenever I write about patent lawsuits, that I include the US patent number on the patent within the text of the article. He explained that for those sued, one of the most useful things is to find other lawsuits regarding that patent, and it's actually not that easy, so having stories list the patent numbers becomes a big deal. In many cases, when companies are sued, their lawyer does a general search to see if the patent has been used in litigation before -- and it's that general Google Search, which is why the request was made to me to include patent numbers. However, for companies or individuals sued by patent holders, having a lawyer sit there and do a Google search can cost you an extra $500 to $700 per hour of lawyers' fees. Many lawyers have argued that the system needs to be much better.

Thankfully, the folks over at Patexia have recently launched a new feature on their site that makes it much easier to look up such things. For example, here are the Patexia results for lawsuits involving US Patent 6,857,067 which is held by Uniloc, who recently used it to sue X-Plane, Mojang and others. While, in that case, you can see all the recent lawsuits come from Uniloc (who could be searched via Pacer), it may not be as complex. But when patents get passed around a lot, following the trail isn't always so easy. No matter what, this seems like it could be a useful tool, especially for those sued by patent trolls.

from the uspto,-we-have-a-problem dept

The latest research by law professor Colleen Chien is getting lots of much-needed press coverage, in that it reveals we've passed the tipping point with patent trolls, as more than half of all patent lawsuits were brought by trolls. In fact, her new report reveals that 61% of all patent lawsuits filed in the first 11 months of 2012... were from patent trolls. That's an astoundingly large number -- and one that is growing fast. The same report notes that just last year the number was 45% and five years ago it was just 23%. When does the government wake up and realize we have a serious problem on our hands?

from the leeches dept

With story upon story upon story (upon story) of how patent trolls, those non-producing entities that derive income solely through litigation and threat thereof, are enormous leeches on innovation and progress, you may have noticed something. You possibly thought to yourself, "it sure seems like we're hearing more about these vampiric bastards these days". Guess what? You are, because there's more of them. Vastly more.

According to a recent study by Robin Feldman of UC Hastings College of Law and Lex Machina, the percentage of patent cases finding their way to court jumped from 22% in 2007 to 40% in 2011. Note that the following graph is a corrected graph issued after the initial report by the authors.

The study was inspired by the America Invents Act, last year's largely toothless overhaul of the patent system. In it, Congress asked the Government Accountability Office (GAO) to study the impact of non-practicing entities—a more clinical term for patent trolls—on the economy. Because Lex Machina already had a database of patent litigation, the GAO asked it to produce a random sample of 100 patent lawsuits for each year from 2007 to 2011. In addition to supplying the GAO with the data it needed for its forthcoming study, Lex Machina decided to publish its own interpretations of the sample.

As the Ars Technica piece notes, that shocking statistic above doesn't even tell the whole story. When you consider that patent litigation as a total has jumped in volume, coupled with the number/percentage of patent troll threats settling well outside of the courtroom, experts figure that the size of the patent troll leeches are roughly double the size of your average adult kraken.

"From all appearances, lawsuits filed are only the tip of the iceberg (editors note: kraken-sized leeches often hide under iceberg tips), and a major operating company may face hundreds of invitations to license for every lawsuit," the authors write.

The America Invents Act was enacted in the final months of the study period. And there was at least one minor change designed to deter troll behavior: the law made it harder to name many defendants in a single lawsuit. But the law's main provisions, such as the switch from a "first to invent" rule to "first to file" is unlikely to affect the volume of troll litigation.

Hell, this all sounds like promoting the progress to me. That, or some flavor of patent abuse. Surely it's one of the two...

from the well-that's-interesting... dept

We've discussed the "America Invents Act," a patent reform bill that passed last year after years of Congressional fighting. As we (and plenty of others) noted at the time, for all the hyperbole around the bill, it completely ignored nearly every problem with the patent system today, and seemed almost entirely useless. Our worry, then, was that this would kill off any appetite for Congress to take on the real problems of patents today. So it's good to see that a new patent bill has been introduced -- by Reps. Peter DeFazio and Jason Chaffetz, with a very, very minor change to patent law: it would allow those sued for hardware or software patents the ability to recover litigation costs if it's determined that the suing patent holder "did not have a reasonable likelihood of succeeding."

In other words, this is a bill targeted very directly at the pure trolls: the patent holders who sue companies with no real intention of taking a case to court, but rather just to get them to pay a settlement fee to avoid the (expensive) court costs in defending a patent infringement claim (which is quite frequently much more expensive than the settlement options):

Notwithstanding section 285, in an action disputing the validity or alleging the infringement of a computer hardware or software patent, upon making a determination that the party alleging the infringement of the patent did not have a reasonable likelihood of succeeding, the court may award the recovery of full costs to the prevailing party, including reasonable attorney's fees, other than the United States.

But what's much more interesting about this is that it seeks to carve out a specific definition for software patents. I know that in software circles there's been plenty of talk over the years about the problems of software patents, and many don't believe that software should be patentable at all. However, as defenders of the patent system like to point out, there's no such "thing" as a "software patent" defined in the law, so it would be difficult to say software isn't subject to patents. Well... this bill defines software patents:

SOFTWARE PATENT.--The term 'software patent' means a patent that covers--

"(A) any process that could be implemented in a computer regardless of whether a computer is specifically mentioned in the patent; or
"(B) any computer system that is programmed to perform a process described in subparagraph (A).".

Given the massive fight in previous years over patent reform, I fully expect to see patent system supporters throw a massive hissy fit over this very, very minor change to patent law, but it's so minor that I'm at a loss as to how they'll have any compelling argument. The only reason I can think to be against the changes here is if you're in the business of abusing the patent system to shake down innovators. I actually think that supporters of the patent system, such as pharma companies, should support this kind of change too. If the patent system can successfully slice off the problems associated with software patents, it means that there will be less pressure for massive patent system changes.

Of course, if you want real patent reform that takes on the larger issues that impact all sorts of areas (beyond just software), we've made clear our suggestions -- though there doesn't seem to be any appetite in Congress to make such major changes in the near future.